Strengthening Finland’s
logistics position
An Action Programme
Strengthening Finland’s logistics position
Strengthening Finland’s logistics position
An Action Programme
Programmes and strategies 7/2005
Ministry of Transport and Communications
ISSN 1457-747X (printed version)
ISSN 1795-4037 (electronic version)
ISBN 951-723-495-3 (printed version)
ISBN 951-723-496-1 (electronic version)
Graphic design: Workshop Pälviä
Printed by: Vammalan Kirjapaino Oy 2005
Photographs: Fotovisio (cover photograph),
Antero Aaltonen, Hannele Sartjärvi, Futureimagebank
On-line publication at www.mintc.fi
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❘ An Action Programme
Contents
Strengthening Finland’s logistics position
An Action Programme
Introduction....................................................................................................... 4
1. Background and vision....................................................................................... 6
2. Proposed measures
.......................................................................................8
2.1 Know-how, innovation and application of technology...................................... 10
2.2 Markets, regulation and intensified dialogue.................................................. 12
2.3 Connections and infrastructure........................................................................14
2.4 International lobbying and interest protection................................................. 16
2.5 Economic impacts of the proposed measures..................................................18
3. Rationale and justification................................................................................. 20
3.1 Role and trends of logistics..............................................................................20
3.2 Component factors of logistics position........................................................... 22
3.3 Finland’s logistics position between the EU and Russia.................................. 23
3.3.1 Logistics volumes...................................................................................23
3.3.2 Logistics actors and their roles..............................................................24
3.3.3 Logistics flows and their routes ........................................................ 25
3.3.4 Economic statistics on logistics between
Finland, the EU and Russia............................................................................. 26
3.4 Developing Finland’s logistics position............................................................ 27
3.4.1 The roles of business and public administration....................................27
3.4.2 The target situation for logistics.............................................................28
3.5 The development of transport markets.............................................................30
3.6 Better productivity through research and new technology............................... 32
3.7 Demand for skilled and competent labour....................................................... 33
4. Background surveys...........................................................................................34
4.1 Logistics partnership between Finland and Russia.......................................... 34
4.2 Current state and future outlook for EU-Russian transport connections.......... 36
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3
Strengthening Finland’s logistics position
Introduction
4
❘ An Action Programme
The Programme of Prime Minister Matti
Vanhanen’s Government says that in the
context of EU-Russian economic
cooperation, the Government will prepare
a transport development programme
aimed at strengthening Finland’s logistics
position and exploiting its economic
potential. The programme will be drawn
up in collaboration between government
authorities, business representatives and
universities. The Ministry of Transport and
Communications appointed a steering
group to take charge of the work to draft a
logistics development programme during
the period from 31 May 2004 to 31 May
2005.
Finland’s logistics position has
changed. EU enlargement, rapid growth
in Russia, the emergence of Asian
economies and globalisation have all
combined to impact and influence the
business environment. It is important in
this changing environment to identify the
challenges faced by logistics and to see
how the growth prospects and
employment can be strengthened in
Finland.
Efficient logistics is crucially important
to competitiveness and employment. The
role of logistics costs and service
capability is highlighted in the current
situation of a changing operating
environment. Requirements of transport
cost effectiveness, punctuality and speed
also place demands on the development
of the transport infrastructure and on
collaboration between domestic and
international authorities. Because of the
sheer size of the country and its distance
from export and import markets, the
development of transport links both
nationally and internationally is extremely
important to Finland.
Key challenges for Finland’s
international infrastructure and logistics
policy are to make sure there is access to
reliable and moderately priced
international routes to and from Finland’s
major export and import markets, to
maintain Finland’s logistics position as
Russia’s neighbour, and to secure its
logistics appeal as the competitive
position of Estonia, Latvia, Lithuania and
Poland continues to strengthen.
Juhani Korpela
Raimo Sailas
Henri Kuitunen
Antti Vehviläinen
Henry Fagerström
Keijo Suila
Perttu Puro
Juhani Tervala
Introduction
The steering group was chaired by
Minister of Transport and Communications,
Ms Leena Luhtanen. Its vice-chair was Mr
Tapani Erling, Director-General of the
National Board of Customs. The other
steering group members were Juhani
Korpela, Permanent Secretary (Ministry of
Transport and Communications); Raimo
Sailas, Permanent Secretary of State
(Ministry of Finance); Raimo Mansukoski,
Senior Advisor (Confederation of Finnish
Industries); Matti Viialainen, Deputy
Director (Central Organisation of Finnish
Trade Unions); Matti Pursula, Rector
(Helsinki University of Technology); Henri
Kuitunen, Director-General (VR Group);
Antti Vehviläinen, Vice President (Stora
Enso); Juha Silvanto, Managing Director
(Steveco Ltd); Jukka Laaksovirta, Chief
Operating Officer (Finnlines Plc), Matti
Aura, CEO (Finnish Port Association);
Henry Fagerström, Chairman of the Board
(Schenker Ltd); Keijo Suila, CEO (Finnair
Plc); Jyrki Räsänen, Director of
Development (Inex Partners Oy); Olli
Rehn, economic policy advisor, until 11
July 2004 (Prime Minister’s Office), Mari
Kiviniemi, economic policy advisor, from
12 July 2004 (Prime Minister’s Office);
and Kare Halonen, Director-General
(Ministry for Foreign Affairs). The steering
group secretariat members were Perttu
Puro, State Secretary; Lassi Hilska, Senior
Advisor, Transport and Logistic Services;
Kaj-Peter Mattsson, Ministerial Advisor;
Juhani Tervala, Senior Advisor,
Infrastructure; and Jari Gröhn, Senior
Research Officer, from the Ministry of
Transport and Communications.
The first draft programme prepared by
the secretariat was discussed at a working
seminar in Oulu on 20 January 2005. The
Ministry of Transport and Communications
has commissioned two reports for use by
the working group, viz. Logistic partnership between Finland and Russia
(Publications of the Research Institute of
the Finnish Economy, B 209) and
Transport links between the EU and
Russia: current state and future outlook
(Ministry of Transport and Communications Publications 4/2005).
Having convened on six occasions, the
steering group has now completed its
Leena Luhtanen
Tapani Erling
Raimo Mansukoski
Matti Viialainen
Matti Pursula
Juha Silvanto
Jukka Laaksovirta
Matti Aura
Jyrki Räsänen
Mari Kiviniemi
Kare Halonen
Lassi Hilska
Kaj-Peter Mattsson
Jari Gröhn
unanimous proposal for the strengthening
of Finland’s logistics position. It submits a
list of 35 proposed measures for the
development of know-how, the improved
use and application of technology, the
development of markets and market
regulation, the development of
infrastructures and transport and
communications links, the stepping up of
international interest protection and
cooperation among different authorities.
The vision and the measures proposed
shall be implemented jointly by
government authorities and logistics
actors in line with an agreed division of
labour and responsibilities.
Furthermore, the steering group
proposes that a follow-up group composed
mainly of steering group members shall
meet once or twice a year throughout the
duration of the programme to assess the
progress made with the proposed
measures and where necessary to submit
new recommendations to strengthen
Finland’s logistics position.
Helsinki, 6 June 2005
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5
Strengthening Finland’s logistics position
1. Background and vision
With the advance of economic globalisation,
international competition is spreading
everywhere. The development of logistics
DEVELOPMENT PROGRAMME
Aims
Strengthening
Finland’s
logistics position
services has contributed to the rapid growth
Exploiting
economic
potential
of international trade. Good logistics is a
necessary condition for business success.
Efficient logistics and good transport links will continue to
assume greater importance for Finnish competitiveness in the
future. A strong logistics market acts to boost competitiveness,
economic growth, employment and welfare. Logistics costs in
trade and industry amount to around 20 billion euros a year,
accounting for some 10 per cent of turnover in this sector.
Logistics is also a major source of employment in Finland, with
some 100,000 people employed in the logistics service sector.
Constant efforts are needed to lower logistics costs and to
increase logistics efficiency.
In the new competitive situation that is unfolding with
globalisation, economic growth in Russia and stiffening
competition in the Baltic Sea region, it is imperative that a
long-term and systematic effort is undertaken to strengthen
Finland’s logistics position. This will also require flexible
customs and other official procedures at different stages of
the transport chain.
A key challenge for Finland’s infrastructure and logistics
policy is to make sure there is access to reliable and
moderately priced international routes to and from Finland’s
major export and import markets. Another major challenge is
to maintain Finland’s logistics position as Russia’s neighbour,
at the same time as the position of Estonia, Latvia, Lithuania
and Poland continues to strengthen.
The development programme is based on an assessment
of Finland’s logistics competitiveness and its development.
It also takes account of the recommendations made by the
Prime Minister’s Office in its “Finland in the Global
Economy” project as well as the measures that will be
introduced in response to those recommendations. The
aims, structure and content of this development programme
are illustrated in Figure 1 below.
The EU is committed to promoting closer EU-Russian
integration and to achieving strategic partnership. It is in
Finland’s best interests actively to promote that partnership.
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❘ An Action Programme
Necessary
assessments
Finland’s
infrastructure and
logistics policy
New
priorities
required
Based on
Comprehensive assessment of Finland’s
logistics competitiveness
Against
background of
Finland
in the Global
Economy project
Intersectoral
debate related
to the project
Measures proposed
and taken on the
basis of the project
Figure 1. Aims, structure and content of development programme.
FINLAND
logistic and
economic
perspective
EU
RUSSIA
Asia
Figure 2. Finland’s position in-between the EU and Russia (and Asia).
Background and vision
Logistics, including haulage, transport and communications
as well as active government involvement, has a key role to
play in integration and partnership.
The European Union has in recent years been working to
open up its transport services market, and the common
market will continue to expand as new members come on
board. In international transport this development is still in its
infancy and (with the exception of shipping) constrained by
bilateral agreements. In the EU it will also take some time for
the impacts of this opening up to filter through, but they will
certainly do so over the next few years.
In spite of transparency objectives and ideas of
partnership, there remain clear conflicts of interest within the
logistics field. The interests of the customer and service
provider do not always coincide, because what is a cost for
one party is an income for the other. This is a constant factor
that never changes.
There are both constant and variable factors in Finland’s
logistics position. One constant factor is the country’s
geographic location, i.e. its distance from its main markets. In
logistics, distance is a definite disadvantage, reducing speed
and adding to costs. Long transport journeys involving multiple
legs are time-consuming – and time is often the most critical
scarcity factor in logistics. On the other hand, distance may
serve to protect some areas of domestic production. One way to
reduce the impact of distance is to accelerate speed at all
stages of the order-delivery chain – the potential for improved
performance is the greatest at various terminal stages.
Another time-related factor is punctuality, which ties in
directly with the factor of predictability. Predictability impacts
stockpiling levels and capacity needs and thereby has a direct
bearing on the costs of logistics.
An increase in speed requires major investments and/or an
increased costs, whereas increased punctuality usually
requires minor investments combined with an effort to
develop and improve operations strategies and management.
On the route from Helsinki via Vaalimaa to St.Petersburg, for
example, even major investments in transport infrastructure
will not have a significant effect on overall transport time,
much of which is spent elsewhere than on the roads or rails.
For this reason the development of customs procedures and
related information transfer at dispatch, border crossings, and
arrivals is a key condition to improving logistics efficiency.
The key to developing Finland’s export and import logistics,
and at once transit transport, lies in the improvement of border
crossing practices. It is necessary to apply all the methods set
out in this development programme in the effort to develop
operational practices, technology and know-how.
The measures proposed for strengthening
Finland’s logistics positions are aimed at
the achievement of the following vision.
Logistics is a recognized factor of competitiveness
In Finland logistics is based on efficiency, good transport
markets and the development of transport connections. In
their decision-making business firms and the authorities
take account of the needs of sustainable and competitive
logistics.
Education and research in logistics are well respected
Finland has in place a comprehensive education system in
logistics which produces competent and knowledgeable
people for logistics jobs at all levels. Logistics research is
of an internationally high standard. Logistics businesses
have considerably stepped up their investment in research
and development.
The cost level for logistics services is competitive
Logistics services in Finland show better cost effectiveness
than today. The conditions for competition in Finland
– including the overall tax rate, transport pricing and the
social dimension – are comparable to its nearest rivals.
Finland is an active player in Baltic region and
intercontinental logistics
Finland’s logistics know-how and cost effectiveness contribute to the country’s strong competitiveness in trade
and logistics between the EU, Russia and Asia. Finland
has taken advantage of its strengths since the Russian
market opened up.
❘
7
Strengthening Finland’s logistics position
2. Proposed measures
With the exception of air transport, Finland is
2–3 days further away from the main European
markets than its rivals in Central Europe. Distance
alone goes a long way towards explaining the
higher logistics costs of Finnish business firms.
For businesses operating in Finland, it is crucially important
that cost levels can be lowered and that efficient transport
services are at their disposal for export purposes. A high
level infrastructure can compensate for the extra transport
costs that are due to the large size of the country.
The working group’s recommendations are designed to
influence the various component factors of Finland’s
logistics position in such a way that business firms’ logistics
costs are reduced and that their competitiveness is
strengthened vis-à-vis rival countries.
Finland’s logistics position vis-à-vis Russia, on the
other hand, is very favourable. It is important to
The proposed recommendations are grouped under the
following headings:
make even more effective, systematic and longterm use of this position.
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❘ An Action Programme
Know-how, innovation and
application of technology
Proposed measures
Markets, regulation and
intensified dialogue
Connections and
infrastructure
International lobbying and
interest protection
❘
9
Strengthening Finland’s logistics position
2.1 Know-how, innovation and application of technology
Logistics is gaining increasing importance as a competitive tool, but
at the same time the scarcity of skilled labour is threatening to
hamper its development. It is important that Finnish know-how and
labour in shipping and aviation are not allowed to drain out of the
country. Steps are needed to develop the education system so that it
produces competent people for transport and logistics jobs at all
levels. International student exchange in the logistics field must be
promoted, particularly with Russia. The quality of university
education in logistics must also be raised, and logistics must be
offered as a minor subject more often.
The efficiency of logistics is based on know-how. New know-how
is created in basic research as well as in applied R&D that addresses
the needs of businesses and administration. Know-how and
competence at the highest level requires a sufficient level of longterm investment in research. Resources in Finland, however, are
inadequate to run several centres of excellence in research.
Researchers therefore need to network with one another and with
leading universities around the world. Research cooperation with
Russian partners must be stepped up. Both the public and the
private business sector must continue to invest in logistics research,
without forgetting the importance of basic research.
Information and communication technologies are used to promote
the swift and trouble-free transport of goods. Jointly agreed and
compatible operational practices make for better predictability in
operations and for more efficient resource use. Freight transport
telematics architecture provides the foundation for the introduction of
electronic transport data. Electronic documents and automatic
identification in particular are expected to pave the way to increased
automation in transport and handling chains. Efforts shall be
continued to further develop electronic business solutions in the
transport sector both domestically and in international cooperation.
Responsibility for information on existing and new possibilities rests
with the Finnish Information Society Development Centre TIEKE.
It is important that new technology is put to good use as widely
as possible. In shipping and port activities, conditions must be
created that facilitate the increased use of automation. Steps are
also needed to expand professional competencies and to facilitate
increasingly flexible operational practices. Work to develop the vessel
and port technology required by the special conditions in Finland
must be continued in a joint effort among the various parties
involved.
The measures proposed will serve to strengthen and promote
logistics education at the highest professional level, research and
innovation, and the export of logistics know-how. The aim is to
bolster the competitiveness of Finnish logistics businesses and to
increase their market share and by the same token to create more
jobs in the industry.
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❘ An Action Programme
Proposed measures
Content of proposed measure
Responsible agent
Timetable
1. Highest level education in the field shall be developed in line with the recommendations issued
by the joint working group appointed on 19 Dec 2004 by the Ministry of Transport and
Communications (MTC) and the Ministry of Education (MoE) to discuss higher education in the
transport sector. Where necessary this will be followed up by a review of the special needs in the
logistics industry. The MTC and the MoE will jointly draft a development programme on basic
and applied research in logistics, taking account of the recommendations by the working group
just mentioned. The Academy of Finland and the National Technology Agency Tekes will also be
involved in this effort. Special attention will be paid to the development needs of education at
the PhD level.
Ministry of Education,
Ministry of Transport and
Communications,
Academy of Finland, Tekes
31 Dec 2006
2. A working group will be appointed for the purpose of developing professional education in the
transport and logistics sector. Professional education shall be developed to make sure there is
access to skilled and competent labour.
Ministry of Education, Ministry of
Transport and Communications
31 Dec 2005
3. Professional training for HGV drivers shall be provided in keeping with the new EU directive,
with regular vocational education accepted as one entry avenue. Access to HGV driver training
shall be secured throughout the country.
Ministry of Education, Ministry of
Transport and Communications
31 Dec 2005
4. Low cost training shall be provided for new would-be entrepreneurs to keep fresh blood flowing
into the transport sector. It is also necessary to look into the feasibility of organising courses in
connection with other vocational training funded from the public purse.
Ministry of Transport and
Communications,
Ministry of Education
31 Dec 2005
5. An assessment shall be carried out of the need for operator independent training for locomotive
drivers and other rail safety personnel.
Ministry of Education, Ministry of
Transport and Communications
31 Dec 2006
6. Steps shall be taken to develop up-to-date information transfer and processing systems that
serve the needs of freight transport and logistics parties. Where possible the corresponding
services shall also be provided across the Russian border.
Ministry of Transport and
Communications,
Finnish Customs
31 Dec 2006
7. Steps shall be taken to develop and introduce IT solutions required by international transport.
• An active contribution shall be made to the creation of a joint logistics information network
for the Baltic Sea region.
• Support shall be provided for the introduction of new compatible information systems in
Russia’s Baltic ports.
• The new PortNet service shall be launched in accordance with ongoing planning in 2008.
• Steps shall be taken to introduce in international transport a system of electronic transport
documents that covers all modes of transport.
• Efforts shall be made to agree on the rules for paperless trade in international cooperation.
Ministry of Transport and
Communications,
Ministry for Foreigh Affairs,
Ministry of Trade and Industry,
Maritime Administration,
TIEKE, businesses
Ongoing
❘
11
Strengthening Finland’s logistics position
2.2 Markets, regulation and intensified dialogue
In a competitive market, customers are free to use the
services of their choice, and service providers aim to
produce them with the greatest possible efficiency. It is
necessary to establish the advantages, drawbacks and
preconditions for the creation of a joint Finno-Russian
transport area. Measures 8-20 are aimed at promoting the
development of an efficient market for logistics services
and at securing access to high quality and reasonably
priced logistics services. An efficient logistics and
transport market strengthens competitiveness, economic
growth and employment.
To curb the growth of logistics costs, restraint should
be exercised in putting up taxes and fees, which would
have the effect of driving up labour costs. Decisions on the
prices of freight transport and subsidies shall more closely
consider their socio-economic and regional policy impacts.
More transparency is needed in transport pricing and
public subsidies.
Traffic safety shall be incorporated as an integral part
of business management and quality systems. Steps are
also needed to improve the management of security risks
in business transports. Research projects aimed at
improving the safety of heavy goods transport and
concerned with both drivers, vehicles and the transport
environment, shall be launched as recommended by the
working group.
Issues related to markets, regulation and security and
environmental impacts shall be included in the proposed
research programme outlined in recommendation 1 above.
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❘ An Action Programme
Proposed measures
Content of proposed measure
Responsible agent
Timetable
8. The need for and possibilities of revising road transport and rail transit transport agreements shall
be jointly reviewed with the Russian authorities. At the same time the negotiating partners shall
look into the possibilities of simplifying the special permit system for heavy goods transport and
discontinuing the system of bilateral travel permits, and assess the pros and cons of reciprocally
opening up rail transport in the border region.
Ministry of Transport and
Communications,
Ministry for Foreign Affairs
31 Dec 2006
9. Efforts shall be made to improve the air transport agreement between Finland and Russia with a
view to increasing the number of destinations and flights. A key concern in talks between the EU
Commission and the Russian authorities on air transport is to secure favourable conditions for the
development of air transport in Finland.
Ministry of Transport and
Communications,
Civil Aviation Administration,
Ministry for Foreign Affairs
31 Dec 2006
10. A stance shall be taken on the discontinuation or extension of the reciprocal transitional period
concerning cabotage beyond 1 May 2006. To this end the Ministry of Transport and Communications
will work closely with the labour market organisations and other relevant interest groups to compile
an assessment by 1 January 2006 on the pros and cons of discontinuing the reciprocal transitional
period of road haulage cabotage.
Ministry of Transport and
Communications and
labour market organisations
1 Mar 2006
11. Steps shall be taken to prepare for the opening up of competition in domestic rail freight in 2007
and to make sure that any new operators receive equal treatment on the rail network.
Ministry of Transport and
Communications,
Finnish Rail Administration
31 Dec 2006
12. An assessment shall be carried out to see whether it is possible to strengthen Finland’s logistics
position by developing the priority principles for rail use by passenger and freight transport.
Ministry of Transport and
Communications,
Finnish Rail Administration
31 Dec 2006
13. The system of fairway dues shall be upgraded with due consideration to the requirements for
national economic balance, and the legislative amendments submitted to Parliament.
Ministry of Transport and
Communications
2005
14. A government bill for a new Port Act shall be drafted. The new law will differentiate between the
business side of port activities and the role of the authorities and business. The purpose is to make
sure that the Constitution is followed and enforced and that all port users receive fair and equitable
treatment.
Ministry of Transport and
Communications
31 Dec 2006
15. Dialogue between the labour market organisations in the logistics sector shall be continued on the
basis of the experiences gained in the Finland in the Global Economy project. The MTC will create a
framework for this dialogue with a view to gaining a clearer understanding of customer needs,
improving labour productivity, creating stable and productive jobs, securing skills and
competencies and welfare in the workplace as well as improving working conditions so that the gap
between the demand and supply of jobs at different stages of the logistics chain can be reduced.
Ministry of Transport and
Communications and
labour market organisations
Ongoing
16. The principle of continuous negotiation as adopted in the incomes policy agreement for 2005–2007
shall be promoted together with the concept of local cooperation and agreements in the transport
sector. In the context of normal cooperation between the labour market organisations, efforts shall
be continued to develop new types of contact that could pave the way to improving competitiveness
and to resolving emerging problems and conflicts in advance.
Labour market organisations
in transport sector
Ongoing
17. An assessment shall be carried out on the need for increased control of heavy goods transport and for
relevant new legislation. This assessment will take account of the transport control programme
(7 April 2005) and the review for the need of safety research into heavy road transport (31 March 2005).
Ministry of Transport and
Communications, Ministry of
the Interior, Ministry of Justice
31 Dec 2005
18. Steps shall be taken to develop subscriber responsibility in heavy goods transport in line with the
findings and statements of the relevant working group and the related legislative amendments
shall be submitted to Parliament.
Ministry of Transport and
Communications
1 Oct 2005
19. The energy efficiency of the transport sector shall be improved. A follow-up system shall be set up
for company-specific feedback and national comparative data with a view to supporting
development efforts.
Ministry of Transport and
Communications,
Ministry of Trade and Industry,
Ministry of the Environment
Ongoing
31 Dec 2005
20. An assessment shall be carried out on the need to test an English-language pilotage service and a
separate survey carried out on the pros, cons and other effects of the experiment.
Ministry of Transport and
Communications,
Maritime Administration
31 Dec 2006
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13
Strengthening Finland’s logistics position
2.3 Connections and infrastructure
It is important for Finland that its business and industry
have access to efficient transport services and a sufficiently
high level infrastructure that compensate for the extra
transport costs arising from the country’s geographic
location. Both domestic and international transport links are
important. Most crucially, infrastructure bottlenecks in the
vicinity of major international junctions must not be allowed
to hamper transport efficiency and punctuality.
One of the major domestic infrastructure investments is
the Nordic Triangle, which is an EU priority project. Finland
has undertaken to make these investments before 2015.
Steps are also needed to develop road and rail links to and
from ports as well as border crossing infrastructures. Other
14
❘ An Action Programme
key targets for development that are crucial from a logistics
points of view are the ease of border crossings with Russia
as well as the efficiency of terminals. Border procedures
between Finland and Russia must be simplified among
other things by developing electronic data transfer systems.
A longer term view is needed in decision-making on
transport investments. Trickle funding should gradually give
way to longer term financial planning that looks ahead over
several years. Funding decisions should place more weight
on the benefits of investments made to the national
economy and to Finland’s international competitiveness.
This also applies to national decision-making on EU
subsidies. The current fiscal approach (maximising the TEN
subsidies paid out to Finland) shall give way to an approach
in which the emphasis is on the development of Finland’s
foreign contacts.
There are also important infrastructure projects outside
of Finland’s borders. In particular, it is important that
connecting links for Finnish sea transports in continental
EU, Nordic Triangle projects and the Via Baltica and Rail
Baltica projects are supported in EU bodies. The ultimate
aim is to create smooth and efficient transport “pipelines”
between Finland and its major market areas. The Motorway
of the Baltic Sea concept is a useful tool in the
development of these transport chains. Therefore it is
important that work is continued with other Baltic Sea
countries and the EU Commission to develop and
implement the Baltic Sea motorway and its concrete followup projects. Russia must also be encouraged to join the
Baltic Sea motorway project.
A more comprehensive approach needs to be adopted to
the development of the transport network in the Helsinki –
St.Petersburg – Moscow corridor. Finland and Russia need
to share a common view on the future outlook of traffic
volumes through different border crossing stations and on
the necessary investments. Key projects from a Finnish
point of view include the fast train link to St.Petersburg, the
road link to St.Petersburg, the new Saimaa Canal road and
the road link to Svetogorsk. It is also important to look into
the possibility of using new, innovative funding instruments
as part of the Helsinki – St.Petersburg – Moscow investment
programme and its funding plan.
As for air transport, it is crucial to make sure that the
Helsinki-Vantaa airport is in the position to offer a
competitive alternative (in terms of air terminal services,
land transport connections, etc.) as a terminal of
intercontinental transport, as well as serving Finland’s
neighbouring regions.
Proposed measures
Content of proposed measure
Responsible agent
Timetable
21. An assessment shall be carried out to see whether it is possible to bring forward the
Lahti–Luumäki rail project and the Lappeenranta–Imatra motorway project, both of which are
crucial to Finland’s international transport links, and to apply the life cycle model in these
projects.
Ministry of Finance, Ministry of
Transport and Communications
Summer 2005
government
budget session
22. All necessary proposals shall be submitted for the development of transport arrangements and
facilities at the Vaalimaa border station during the current Government’s term
of office.
Ministry of Transport and
Communications, Finnish
Customs, Frontier Guard
1 Oct 2005
23. For purposes of the next Government investment programme, a proposal shall be drafted
regarding the launch of a thematic project for the improvement of road and rail links at border
crossing locations.
Ministry of Transport and
Communications, Finnish Road
Administration, Finnish Rail
Administration, Finnish
Customs, Frontier Guard
1 Oct 2005
24. Plans shall be drawn up for the creation of an HGV queueing management system at the
Vaalimaa border station so that the project can go ahead in 2007. Studies shall be conducted
into the possibility of cooperation and exchange of up-to-date information with the Russian
border and road authorities.
Finnish Road Administration,
Finnish Customs, Frontier
Guard, Ministry of Transport and
Communications
31 Dec 2006
25. For purposes of the next Government investment programme, a proposal shall be drafted
regarding the launch of a thematic project for the improvement of transport links to and from
ports. This project covers road and rail links as well as sealanes.
Ministry of Transport and
Communications,
Finnish Road Administration,
Finnish Rail Administration,
Maritime Administration
1 Mar 2006
26. Ongoing efforts to develop customs clearance methods between the EU and Russia provide an
opportunity for the regional piloting of new electronic data transfer methods along the border
between Finland and Russia.
Finnish Customs,
Frontier Guard
Ongoing
27. Within the framework of the Wider Europe for Transport process (a high level working group
which prioritises EU transport links to neighbouring countries), lobby efforts shall be aimed at
ensuring that
• the Helsinki–St.Petersburg–Moscow transport corridor and its extension the Trans-Siberian
railway are selected as one of the EU’s main external transport corridors
• the Barents Euroarctic Transport Area (BEATA) is integrated in the Wider Europe process
• key projects from a Finnish viewpoint, particularly the Trans-Siberian railway and its various
branches, as well as The Northern East West Freight corridor (N.E.W.) are promoted.
Ministry of Transport and
Communications
31 Dec 2005
28. Every effort shall be made in talks with Russia to secure the conditions for continued traffic
along the Saimaa Canal.
Ministry of Transport and
Communications,
Ministry for Foreign Affairs
ASAP
❘
15
Strengthening Finland’s logistics position
2.4 International lobbying and interest protection
Most transport related legislation is drafted by the EU. It is
therefore important that there is a systematic effort to remind
EU institutions about Finland’s and other peripheral EU
members’ distinctive characteristics (long distances, low
population density, winter conditions) and their impacts on
logistics costs. This requires careful and persuasive
argumentation, credible communication and active lobbying.
Finnish interests must be taken into account in the
preparation of EU regulations and international agreements.
Active lobbying is needed to make sure that transport fees
within the EU remain reasonable and that there are equal
opportunities for competition. Efforts are needed to curb the
growth of transport costs in peripheral EU states. In domestic
tax policy and other decision-making it is important to take
account of existing practices in our rival countries as well as
current EU legislative proposals. Furthermore, it is necessary
closely to monitor the economic and financial policy measures
taken by other EU members with a view to improving their
logistics competitiveness and the competitiveness of their
businesses firms in the logistics market. It needs to be
considered whether corresponding measures are feasible and
necessary in Finland.
Major efforts are needed within the EU and especially in
transatlantic relations and international transport
organisations to highlight the need to keep in check the cost
effects of the safety and security precautions required in the
transport sector. As the EU’s trade policy jurisdiction
continues to expand, it is important to ensure that Finland’s
transport policy and logistic interests are protected. This
applies, for instance, to international transport and aviation
agreements with Russia, Asian countries and the United
States.
EU-Russian dialogue on transport and logistics policy shall
be promoted in line with objectives of the Common Economic
Space (CES) between the EU and Russia. Harmonisation of
the conditions for a pan-European transport market shall be
supported in follow-up talks concerning the implementation
of a common economic area as part of the EU neighbourhood
policy. Efforts shall be made to ensure that on the toll roads
opened in Russia, no discriminatory charges are imposed on
international transport.
Various steps shall be taken to facilitate legal trade with
the growing Russian markets. In addition to measures related
to border crossings, cooperation shall be continued in
questions around certification and licensing. Furthermore, it
is important that there is continued cooperation with the
relevant authorities and the other countries involved in the
transport chain to combat crime.
16
❘ An Action Programme
Proposed measures
Content of proposed measure
Responsible agent
Timetable
29. During Finland’s EU Presidency logistics shall be promoted as a key competitiveness issue in EU
transport policy. Systematic, long-term development of logistics shall be an integral part of EU
competitiveness policy. The Commission will be expected to issue a Communication on logistics
in 2006. The role of logistics shall be emphasised in common EU transport policy, such as in
the interim review of the White Paper on European Transport Policy and the implementation of
the Lisbon strategy. Lobby efforts are needed to have logistics included in the 7th EU framework
programme for research.
Prime Minister’s Office,
Ministry of Transport and
Communications,
Ministry of Trade and Industry
31 Dec 2005
30. The EU Commission, international financial institutions, Russia and other interested EU
countries in the Baltic Sea region shall be persuaded to carry out a joint assessment of the
conditions and need for a Northern Dimension transport and logistics partnership.
Ministry of Transport and
Communications,
Prime Minister’s Office,
Ministry for Foreign Affairs
31 Dec 2005
31. Steps shall be taken to intensify Baltic cooperation in transport policy and the logistics sector
within various regional councils (Baltic Sea countries, Nordic countries, Barents region and the
Arctic region) and in bilateral cooperation. The aim is to streamline operations, establish a
clearer division of labour and improve opportunities to promote the regions’ common interests
and projects within EU transport policy.
Ministry of Transport and
Communications,
Ministry for Foreign Affairs
31 Dec 2006
32. Through the forums of bilateral negotiation, EU external relations and trade policy and
talks aimed at Russian WTO membership, efforts are made to the effect that
• Siberia overflight charges are phased out as agreed
• Russia’s rail transport tariffs are harmonised
• the transparency of transport fees and charges is increased.
Ministry for Foreign Affairs,
Ministry of Transport and
Communications
31.12.2005
33. Steps shall be taken to promote the dialogue on logistics between Asia, Russia and the EU and
to create a permanent framework for these discussions. The matter shall be raised in
connection with the ASEM summit in Finland.
Ministry for Foreign Affairs,
Ministry of Transport and
Communications, Confederation
of Finnish Industries
31.12.2005
34. Lobby efforts shall be made to persuade increased EU funding outside Finland’s borders on
projects that strengthen Finland’s foreign connections. Steps shall be taken to increase
cooperation and coordination between different ministries.
Ministry of Finance,
Ministry of Transport and
Communications,
Ministry of the Environment,
Ministry of the Interior and
Ministry of Trade and Industry
31.12.2005
35. Bilateral and EU customs cooperation shall aim to promote smoother border crossing
procedures (green line) that are based on electronic information transfer, harmonised data
contents and consistent customs procedures. The aim is to speed up both border crossings and
customs clearances.
Finnish Customs,
Ministry for Foreign Affairs
31.12.2005
❘
17
Strengthening Finland’s logistics position
2.5 Economic impacts of the proposed measures
The measures outlined above will primarily have the effect
of creating smoother heavy goods transport. Faster and
more punctual deliveries will increase the efficiency of
resource use both in logistics service companies and in
trade and industry. Increased efficiency, then, will mean
lower transport costs and reduce the adverse effects from
inefficient transport.
The measures shall be carried out primarily by
allocating operating funds as well as R&D funds to the
relevant agencies and offices, and by making available
appropriations earmarked for cooperation with
neighbouring regions. However, if the inquiries and the
long-term basic research and R&D activities proposed are
to be successfully carried out, the Ministry of Transport
and Communications R&D appropriations need to be
increased by at least one million from the current figure of
6.85 million euros a year, because only a small fraction of
the monies can be spent on logistics.
The budget for the development project at the
Vaalimaa border crossing station under measure 21,
according to plans drawn up for the project, stands at
16 million euros. The budget for road and traffic
rearrangements at the goods transport centre is around
8 million euros, which should be allocated to the Finnish
Road Administration separately in the State budget. The
costs of building construction are also budgeted at
8 million euros. Finnish Customs and the Frontier Guard
will be commissioning the building project to Senate
Properties, which will be funding the work out of its own
pockets and reclaiming the costs by charging an advanced
rent in the coming years. The advanced rent and the
necessary acquisitions of monitoring equipment and staff
recruitment needs will be addressed separately in these
authorities’ own budgets. Finnish Customs has a need for
an additional 32 person-years, acquisitions worth one
million euros and overheads at 0.5 million euros/year; the
corresponding figures for the Frontier Guard are
30 person-years, 0.4 million euros for acquisitions and
0.2 million euros/year for overheads.
Decisions on additional appropriations shall be handled
in the regular budget process and any decisions made
separately in connection with budget decisions.
The preliminary budget for the border crossing points
and port transport connections planned for the next
government term is around 30 million euros. More
detailed information on the additional costs required by
the development of education and infrastructure will be
available once the relevant reports are completed.
18
❘ An Action Programme
Proposed measures
❘
19
Strengthening Finland’s logistics position
3. Rationale and justification
20
❘ An Action Programme
15
■ water transportation (btkm)
■ rail transportation (btkm)
■ road transportation (btkm)
■ value added (billion euros)
10
forest industry
10
15
Figure 3.
Value added and transport performance in Finland
by mode of transport in 2002. Source: MTC 26/2004
fuel production
textiles, clothing, etc. industries
building materials industry
civil engineering
food industry
5
chemical industry
metal industry
technology industry
0
other industries
5
billion tonne kilometres
Logistics is the management of materials, capital and
information flows and related processes in organisations.
Its aim is to get the right product at the right time to the
right place in the right condition and with the right
information at the lowest possible cost.
Business firms today operate in an environment where
delivery chains are global, where there is increasing
uncertainty, products are increasingly complex and
customers insist on higher quality standards at lower
prices. In the late 1990s, logistics in the best business
companies was responsive, agile and light. Today’s
catchwords are collaboration, management of the value
chain and differentiation.
The most visible part of logistics is transport, which is
at once the aspect that can most readily and directly be
influenced by government measures. Transport requires
roads and other corridors, terminals, transport equipment,
drivers, as well as information and communications
technologies. The availability, price and quality of all these
is influenced and controlled by government decisions.
Needs for transport vary widely from one industry to
another. As can be seen in Figure 3, the single biggest
transport user in Finland is the forest industry.
Technology industries record the highest value added
figures, but their shipments of freight tonne kilometres
are at a much lower level. On the other hand technology
shipments usually have greater speed and punctuality
requirements than shipments in the forest industry.
The ongoing globalisation of production, acquisitions
and markets means that delivery chains and logistics
solutions are also becoming globalised. Global logistics
services are expected to produce the same sort of quality
standards (reliability, speed, flexibility, punctuality, low
cost) as domestic logistics. On the other hand logistics
service providers are more and more often global businesses
or business networks. Good logistics is crucial to business
success, especially in international competition.
Delivery networks are now growing up alongside
traditional delivery chains in which suppliers, recipients
and logistics service companies are working closely with
one another to improve logistics service standards and
cost effectiveness. Logistics information and information
transfer systems have a key role to play in the creation,
maintenance and management of global delivery
networks. Indeed in the global marketplace it is no longer
individual business companies that are competing with
one another, but delivery networks.
billion euros
3.1 Role and trends of logistics
Rationale and justification
As the demand for and supply of services through the
global production chain continue to grow, even long haul
shipments of valuable goods have become increasingly
common, driving up the total volume of transport faster
than production volumes.
The increasing use of containers and other large units
is also increasing the number of intermodal transport
chains. These chains make use of highly cost effective
rail and sea shipments on trunk transport routes, with
collection and delivery organised flexibly by road. For
environmental reasons EU transport policy favours
intermodal transportation over and above direct road
transportation. Indeed various measures are now being
applied to increase the efficiency of intermodal transport
chains. These efforts also benefit global transport chains,
which are often intermodal by their very nature.
Containers and other large units are often used to
carry valuable or sensitive goods. The volume of
containerised goods in international transport has
increased significantly, and it is expected that this trend
will continue at a rate of around nine per cent a year.
Efficient container traffic requires advanced freight
handling technologies and a high level of services.
Containers are easy and fast to handle, which means
vessels have to spend fewer expensive hours sitting idle
at dockside. The speeds of container ships have also
increased; the fastest vessels currently in service can
reach speeds of up to 40 knots. Fast and small container
ships are best suited for short distance haulage, such as
coastal and short sea shipping. Yet it is not the vessel’s
speed that is the most crucial factor, but the speed of
cargo handling and minimising the number of port calls.
In ocean transport the size of container ships (with a
capacity in excess of 5,000 TEU) is growing rapidly,
which means that second hand vessels commissioned to
the Baltic Sea may well increase in size as well. Already
the newest container vessels here have a capacity of well
over 500 TEU; some are larger than 1,000 TEU.
A critical factor in container transport chains is the
level of port services. Indeed from a logistics point of
view it is important to invest in the throughput of
container terminals (e.g. several loading and unloading
points per vessels, adequate cargo handling equipment
and personnel, automation of cargo handling) and in
hinterland traffic junctions connected to ports. At current
transport volumes, 1,000 TEU vessels are in fact too
large for Finnish needs because the frequency of
departures would remain too low and overall transport
times would increase.
ICT use allows for cost effective logistics of an
increasing number of products even when distances are
long and several market areas are involved. The
significance of distance in logistics solutions is thus
reduced. ICT provides a powerful tool for comparing
alternative transport and logistics solutions, improving the
predictability of logistics, real-time tracking, and reducing
response times (which has the effect of increasing
demand for frequent deliveries). Improved tracking
facilities also help to improve transport security.
Technological advances have been one of the most
important preconditions for the globalisation of
production, markets and logistics. On the other hand ICT
use has the effect of raising quality demands and
expectations for logistics services and quickly revealing
bottlenecks in the delivery chain. ICT therefore helps to
direct transport flows to the logistically most efficienct
routes.
Logistic developments made possible by new transport
and communications technology:
• reduces average transport distances
• increases delivery frequencies
• increases air transport as a proportion of total transport
movements
• increases the efficiency of sea transport and intermodal
transport chains
• concentrates main transport flows to international hubs.
1) TEU = twenty foot equivalent unit. For instance, a 40-foot container
corresponds to two TEUs.
❘
21
Strengthening Finland’s logistics position
3.2 Component factors of logistics position
Business operating environments are affected by
numerous factors. Key among these factors are the
location of markets and the availability of factors of
production. However the relative weight and value of these
factors varies according to the type and nature of
business.
Component factors of the operating environment include:
• market
• labour
• industrial structure
• sources of acquisition
• framework for operation
• transport infrastructure
• logistics services
• business services
• passenger traffic
• image of region
• additional factors related to global operating
environment.
Source: VUOLOG project
Modifying this list somewhat, the component factors of
Finland’s logistics position can be described as follows:
Logistics services
The availability, quality and costs of logistics services
impact the operating environment of all businesses. Some
give priority to speed, others want to have special tailored
services, others still give priority to cost effectiveness.
Among a group of companies located in the same area and
with access to the same services but different logistics
needs, some may regard their logistics position as poor,
others as excellent.
Rail transport, at its best, is highly efficient, but it is
hard to serve thin and scattered flows by train. Finland has
a rather good rail network and adequate resources to
address customer needs. The opening up of the markets
will contribute to greater operational efficiency and create
a more balanced demand and supply structure, even if
there is no immediate, direct competition.
The capacity and frequency of regular sea transport
services and the reliability and low cost of port services are
crucially important to Finland’s foreign trade. For reasons
of geography only transports to Russia and part of northern
transports can rely exclusively on land routes.
Air freight accounts for more than ten per cent of the
value of foreign trade transport. Growing demand in air
freight has also been reflected in service development,
which for good reason has received increasing attention.
22
❘ An Action Programme
In respect of air transport Finland remains in a strong
position at least for the time being. Finland’s location is
ideal for intercontinental air transport, but scarcity of local
demand has effectively prevented the development of a
global air freight hub. Nonetheless transit air freight
generates a significant proportion of Finland’s overall
freight revenue and accounts for a significant proportion of
jobs in the industry.
The significance of volumes
The volume of Finland’s own foreign shipments is not
enough to produce sufficiently frequent and regular
services to Central Europe and ocean ports. Transit traffic
to and from Russia adds to the efficiency of these
transport flows by increasing the volumes carried and the
frequency of departures. The additional demand generated
by transit traffic means the supply of logistics services in
Finland is better than it would be without that traffic.
Intercontinental container traffic uses the ocean ports
of the North Sea. For shipments to the Far East, there is
also the Trans-Siberian container service which is a
cheaper option than air transport and faster than sea
transport. Russia is also working to develop new
connections south from the Trans-Siberian railway.
Location
Location is often a relative concept. It depends, among
other things, on the location and accessibility to markets
and factors of production, as well as on the position of
one’s rivals. The markets are where the people are. At the
end of the delivery chain is the unpredictable consumer,
who in the last instance determines the competitiveness of
the whole chain.
Global competition is a two-way road. Good
connections mean that even remote producers can sell
their goods on the world market, but also that local
markets are opened up to global competition. If Finland
fails to provide adequate transport connections, its
producers will have no chance of succeeding in the world
market, and in the absence of competition its consumers
will have to pay unnecessarily high prices.
Domestic markets in Finland are very small, the main
markets are overseas and intensely competitive. On the
other hand the markets are growing very rapidly. Factors of
production are limited, and energy imports, for instance,
are substantial. In some market segments Finland has
world leading expertise and successful companies that
attract business from far afield.
Rationale and justification
3.3 Finland’s logistics position between the EU and Russia
3.3.1 Logistics volumes
443 Mt
The total volume of freight transported in
Finland in 2003 was 443 million tonnes
(Mt). Almost nine out of ten freight
tonnes were transported on the roads.
The domestic transport performance
amounted to 40 billion tonne-kilometres,
with rail transport accounting for onequarter of this. Domestic road and rail
transport figures also include the
domestic part of international transport.
Part of this freight is exported out of the
country or comes in as imports via ports
or border stations. In 2004 Finland’s
foreign trade transports totalled 108 Mt,
with imports accounting for 66 Mt and
exports for 42 Mt.
Water 1 %
Air 0 %
Rail 10 %
Figure 4.
Breakdown of
freight tonnes
and transport
performances
in Finland in
2003 by mode
of transport.
40 btkm
Water 7 % Air 0 %
Rail 25 %
Road 89 %
Foreign trade transports 108 Mt
Air 0 %
Road 7 %
Rail 11 %
Post 0 %
Other 3 %
Export, import and transit traffic
between Finland and Russia amounted
to 40 Mt, up by 9 per cent on the
previous year.
Road 68 %
Figure 5.
Foreign trade transports 90 billion € Breakdown of
tonnage and
value of Finland’s
Post 0 % Other 2 %
foreign trade
Air 12 %
transports in
2004 by mode
Road 11 %
of transport
Source:
Finnish Customs
Rail 3 %
Water 79 %
In spring 2005, the cost of transporting
one container (at around 20 tonnes)
from Kymenlaakso to Moscow is around
1,700 euros, or 8.5 cents/kg, which
represents around four per cent of the
average value of exports. More on the
economy of Russian logistics later.
Water 72 %
imports 33 million tonnes, -12 %
OTHER
COUNTRIES
Sources: Road
Administration,
Rail Administration,
Maritime
Administration,
Civil Aviation
Administration
imports 33 million tones, +10 %
FINLAND
exports 40 million tonnes, + 4 %
Figure 6.
Finland’s
foreign trade
transports
in 2004
and change
from 2003.
RUSSIA
exports 1.9 million tonnes, +12 %
transit to Russia 2.6 million tonnes, + 18 %
transit from Russia 3.0 million tonnes, - 9 %
❘
23
Strengthening Finland’s logistics position
3.3.2 Logistics actors and their roles
There are different actors at different levels within the
logistics system. In the last instance the purpose of the
system is to produce goods for which end-users are
prepared to pay a price that exceeds production costs. In
perishable goods, for example, wholesalers and the
industry can be seen as part of the system that fills retail
shelves.
In a market of free competition, customer is always
king. All product or service producers are dependent on
their customers. Business survival depends on the ability
to find a market, i.e. customers for the products or
services produced; and in the longer term on the ability to
hold on to those customers. It is important to listen to
customers and their views on the company’s products or
services, and business management must be aimed at
satisfying customer needs in an economically viable and
profitable way.
The growing weight attached in recent years to
environmental considerations is also reflected in the
criteria of service quality. More and more often now, it is
stressed that apart from the quality factors mentioned
earlier, transportation must be so organised that it places
minimum strain on the environment.
In virtually all industries there are some businesses
that run a local operation, while others engage in global
trade. Differences in product characteristics also mean
that there are different logistics needs. Logistics service
providers address their customers’ needs in different
ways. A business firm with a global operation will get the
services it requires from a major operator that can provide
similar services around the world. Local operators may be
subcontractors to globally operating companies. In foreign
trade, it is only rarely that the logistics partners of
Finnish trade and industry are based in Finland any more.
CUSTOMERS
END-USERS
Customer service, price
PRODUCERS, TRADE
DISPATCHERS
Standard of logistic services, costs
LOGISTICS
SERVICE
PROVIDERS
FORWARDERS, STORAGE
Freight charges, fees, taxes
ROAD, RAIL, WATER, AIR
CARRIERS, TRANSPORT
COORDINATORS
TRANSPORT
SERVICE
PROVIDERS
Rights of use, access
PUBLIC AND PRIVATE
TRANSPORT
INFRASTRUCTURE
USERS
Funding, regulations
PUBLIC (PRIVATE),
TRANSPORT
INFRASTRUCTURE
PROVIDERS
Politics, social development
Figure 7. Logistics actors, interfaces and questions.
24
❘ An Action Programme
Rationale and justification
3.3.3 Logistics flows and their routes
The main Baltic Sea ports in the Gulf of Finland and along
the Baltic coastline account for the bulk of EU–Russian
transport flows. The land route through Belorussia, Poland
and Germany remains insignificant, at least for the time
being.
It is forecast that the sharpest increase in freight
transport will be seen in Russian ports at the far end of
the Gulf of Finland and in the Germany–Poland route,
which will more than triple by 2030. This figure does not
include energy transports. The Baltic ports will retain their
position, but growth in their case will be less dramatic.
Russian transit traffic volumes have a major impact
particularly on Baltic national economies. There is intense
competition for the growing volumes, which is further
enhanced by Russian investments in its own ports and a
policy of favouring those ports.
Baltic and Finnish ports account for a significant
proportion of Russia’s foreign trade transport. The level of
transit traffic has remained high not only because of
Russia’s limited port capacity, but also because of strong
economic and foreign trade growth and the oil and gas
pipelines than run through to the Baltic ports.
Russia’s own Baltic Sea ports are located at the eastern
end of the Gulf of Finland and in Kaliningrad. The Gulf of
Finland option is very much hampered by difficult ice
conditions. It is only during the past few years that the
port capacity in this region has shown more significant
growth. As for Kaliningrad, the main difficulty is presented
by the road connection cutting through Lithuania and
Belorussia before reaching central Russia.
Partload traffic is set to increase in the future as a
proportion of total Russian transports to Europe. This will
further underline the role of speed and quality in logistics
services, the speed of handling major units and the ease of
border crossings.
There are four main routes of transport between the
EU and Russia, all of which are directly connected to the
Trans-Siberian railway and the Far East:
• the route via Finnish ports
• the route via Russian ports
• the route via Baltic ports and
• the land route via Germany, Poland and Belorussia.
The main characteristics of the transport routes
between the EU and Russia and the strengths and
weaknesses of the routes that run through Finland are
listed in a separate table at the end of this report.
2003
Helsinki
St.Petersburg
Tallinn
Stockholm
Moscow
Figure 8.
Main transport
routes between
Russia and the
EU in 2003.
Source: MTC 4/2005
Riga
energy products,
ground transport
Vilnius
Minsk
crude oil, pipeline transport;
other, ground
transport
Warsaw
4 3
2 1 million
tonnes/year
2030
Helsinki
St.Petersburg
Tallinn
Stockholm
Moscow
Figure 9.
Main transport
routes between
Russia and the
EU in 2030.
Source: MTC 4/2005
Riga
energy products,
ground transport
crude oil, pipeline transport
Vilnius
Minsk
other, ground
transport
Warsaw
4 3
2 1 million
tonnes/year
Helsinki
Oslo
Stockholm
St.Petersburg
Tallinn
Moscow
Riga
Vilnius
Copenhagen
Berlin
Minsk
Warsaw
Figure 10.
Alternative routes.
Routes:
Russian ports
Trans-Siberian railway
Baltic ports
Source: MTC 4/2005
Finnish ports
Germany–Poland-route
❘
25
Strengthening Finland’s logistics position
3.3.4 Economic statistics on logistics
between Finland, the EU and Russia
In a recent survey commissioned by the Ministry of
Transport and Communications, the Research Institute of
the Finnish Economy has studied the economic impacts
and business potential of Russian transit transportation
and the overall logistics situation between Russia and
Finland. The next few pages summarise the findings of
this report (Logistics partnership between Finland and
Russia , ETLA B209).
Impacts of Russian exports and imports
on the Finnish national economy
In 2003 some seven per cent of total Finnish exports
went to Russia. In input-output terms, Russian exports
account for just over two per cent of Finnish GDP in
2000 prices. Russian exports have had the greatest
impact on production volumes in the electronics industry,
mechanical engineering industry, chemical industry, food
industry and paper industry.
Intermediate trade means that these production
impacts are felt widely throughout the national economy,
particularly in industries producing intermediate goods
for Russian exports and in primary production. Examples
include agriculture, forestry, energy and water supply and
certain service industries.
In the services sector the indirect production impacts
of Russian exports are seen most particularly in transport
and storage, trade and business services.
Using an input-output model, the estimated impact on
the national economy’s total output was 7.6 billion euros,
almost twice the figure for the direct export and output
impacts.
The employment effects of Russian exports are the
greatest in mechanical engineering, business services and
agriculture, at more than 5,000 persons in each branch.
In the transport and storage industry it is estimated that
Russian exports account for some 2,500 jobs. In the
whole national economy Russian exports are estimated to
account for 47,000 jobs, or around two per cent of total
jobs in the country.
26
❘ An Action Programme
Impact of transit transport
National accounting data on the production and
employment impacts of transit transport are not available.
The production impacts of transit transport in the Finnish
transport sector are primarily felt in rail freight transport
and transport services because the bulk of transit road
freight is carried by Russian vehicles, while water and air
transit operated by Finnish companies is relatively
insignificant.
According to the survey the main production and
employment effects of transit transport in the Finnish
national economy are through stevedoring and forwarding
operations at Finnish ports. For this reason transit
transport has the greatest impact in the Kymenlaakso
region, with the ports of Kotka and Hamina accounting
for a large proportion of overall transit traffic. Transit
transport accounts for almost ten per cent of the total
volume and employment of transport and storage in the
Kymenlaakso region.
The total number working in transit transport stands at
around 1,350, representing just over one per cent of
production and employment in the transport and storage
sector.
Transit transport is therefore of major significance to
the logistics industry only regionally. However the volume
of this transport, if properly run and organised, can help
to lower the unit costs of Finnish export and import
transports. This will not happen automatically, however,
but strong coordination is required in order that the
potential benefits can be realized.
Information about the overall processes of Finnish
export and import logistics (including transit traffic), its
operational practices, value added, resources and cost
factors is rather scattered and fragmented. In order to
rectify this situation a development project should be set
up with a view to appointing a suitable organisation to
collect, store and analyse this information on an ongoing
basis.
Rationale and justification
3.4 Developing Finland’s logistics position
3.4.1 The roles of business and
public administration
Infrastructure and operating environment
Cooperation
Activity
BUSINESS
PUBLIC ADMINISTRATION
Figure 11.
Public administration and business world: separation of roles.
LOGISTICS
PERFORMANCE
BUSINESS
COMPETITIVENESS
▲
LOGISTICS
MANAGEMENT
AREAS
▲
OPERATING
ENVIRONMENT
▲
POLITICS
▲
information
infrastructure
acquisitions
throughput
time
product
costs
physical
infrastructure
production
storage
turnover
profitability
accuracy of
deliveries
customer
willingness
to pay
▲
▲
▲
storage
▲
service
regulation
▲
political
measures
▲
▲
availability
of competent
staff
transport
capital
turnover
customer
satisfaction
technical
standards
sales
logistics
costs
market
shares
▲
The efficiency of businesses’ logistics operations depends
upon the skills and competencies of the actors involved, the
service market, the physical and information infrastructure,
technical standards and international trade procedures.
Government measures impact these factors in the operating
environment in various ways, both directly and indirectly.
Figures 12 and 13 illustrate this steering role of public
administration and the chain of impacts.
Logistics is an information-intensive business, and
modern, high-powered ICTs have allowed for improved
management of delivery chains and more efficient resource
application. Work to develop harmonised interfaces between
information systems and to agree on technical standards is an
international exercise in which the state has the role of
coordinating development and protecting national interests.
Standardisation in the transport and communications sector is
carried out in various international organisations and their
expert working groups. The work they do is for the public good,
and the costs are therefore usually carried by the state. This
involvement also allows the state to have its say on the content
of standards and to make sure it keeps up with developments.
The markets of all modes of transport are regulated in one
way or another. This obviously involves the risk that powerful
interest groups can sway political decision-making and
maintain market rigidities. Government measures can
significantly contribute to the development and operation of
efficient logistics markets
Government tax and fee policies have a direct impact on
logistics costs. For reasons of competitiveness it is important to
exercise restraint with respect to putting up taxes and fees,
which would drive up labour costs. Freight transport is subject
to taxes and fees that for geographical reasons may have a very
great impact indeed. Again it is crucial to exercise caution so
as not to overly complicate the conditions for production.
It is naturally also important to monitor the economic and
financial policy measures taken by other EU members with a
view to improving their logistic competitiveness or the
competitiveness of their businesses in the logistics market.
Where applicable it is necessary to consider the feasibility of
corresponding measures in Finland.
On the EU internal market Finland has only limited powers
to make independent decisions because legislation governing
the transport market, for instance, is largely Community
legislation. Finland has only limited weight in the decisionmaking process and our problems are different from those
EU<–> FINLAND<–> RUSSIA
Level of logistics customer relationship
Figure 12.
Impact of government decision-making on logistics (politics).
❘
27
Strengthening Finland’s logistics position
experienced by the more influential Central European
members. Indeed it is a huge challenge to try and sway
decision-making in the EU.
International transport agreements with other than ETA
members are signed bilaterally with other state actors. The
provisions of those agreements determine the conditions for
entry into the transport market and for operating on that
market. Ultimately, however, everything is based on
reciprocity – there is no other way. In addition to agreements,
international transport is governed by Finnish and foreign
authorities: it depends largely on their efforts and cooperation
how smoothly import and export procedures run and how
competitively international transport can operate.
The efficient production of transport services requires highquality transport corridors. The development and maintenance
of these corridors is the responsibility of the state. It is the
state’s job to protect Finnish interests when agreements are
drafted on the extent and financing of European transport
networks. EU funding has only limited significance on the
maintenance of Finland’s transport corridor network. From a
logistics point of view that network is generally speaking in good
condition, but it is obviously important to ensure that this
remains the case. As transport volumes continue to grow, this
will require development projects. Investments in infrastructure
are one of the most significant means that remain a matter of
national decision-making and that can be applied to improve
Finland’s logistics position and competitiveness.
It is also the government that controls the education
system, which produces labour with different qualifications
for different industries. Other tools for controlling the
availability of staff with appropriate qualifications include tax
and housing policy. University-level education requires
investment in basic and applied research as well as R&D. It is
important that this can be done in an independent way from
the public purse, but business and industry must obviously
contribute as well. High level university education requires
active teacher, student and researcher exchange. The logistics
partnership between Finland and Russia can be promoted by
increasing interaction between Finnish and Russian students,
researchers and universities.
3.4.2 The target situation for logistics
The project to strengthen Finland’s logistics position and
the related strategic decisions require a clear vision of the
ultimate target situation. In this case many of the factors
impacting the outcome are already given in advance or
decided elsewhere (geography, Russian development, EU
28
❘ An Action Programme
development, changes in world trade, etc.). Within this
general framework, however, it is possible for Finland to
make choices that will influence the costs and efficiency
of logistics.
Our primary concern now is to work to develop the
logistics operating environment according to our own
needs. On the other hand this goal will be achieved by
working to maintain Finland’s position in the logistics of
Russian foreign trade. From a transit transport point of
view Finland’s current logistics position can be developed
by placing much or no weight at all on transit, or by
adopting a middle-of-the-road policy. It has been decided
that further measures shall be based on the latter option
where the emphasis is placed on developing resources
that are important both to Finnish foreign trade and transit
transport. The idea is to move forward from the current
situation both by developing Finland’s current strengths
and by trying to remove obstacles and bottlenecks.
The government will assume responsibility for the
measures under its jurisdiction, while practical
implementation of the vision will be the responsibility of
logistics industry players. The Table on following page
illustrates in the form of a score card the success factors of
Finland’s logistics positions, the baseline situation in 2005
and the target situation in 2010 from the points of view of
efficiency, the customer, cooperation and know-how.
The development of Finland’s export and import logistics,
and at once the development of transit transport, requires first
and foremost the development of border crossing practices.
BORDER CROSSINGS NOW
speed: from hours to days
punctuality: hard to predict
FINLAND
speed
accuracy
RUSSIA
huors–day
hours
huors–day
hours
key areas,
ports
St.Petersburg and
Moscow area
BORDER CROSSING IN TARGET SITUATION
speed: minutes–hour
punctuality: easy to predict
• improved cooperation between authorities
• development of logistic telematics
• education, research and development
• development of transport infrastructure
• EU transport policy
Figure 13. Targeting the development of logistics between Finland,
the EU and Russia.
Rationale and justification
Perspective
PRODUCTIVITY AND
EFFICIENCY OUTCOME
(efficiency, costs, performance
indicators)
Success factors
CUSTOMER OUTCOME
(customer relations with the EU and
Russia, added value produced for
customer, customer satisfaction)
COOPERATION AND
PROCESSES OUTCOME
KNOW-HOW, INNOVATION,
RENEWAL OUTCOME
(process perspective,
external/internal interest groups)
(innovation and know-how,
research and development)
1. Efficient logistics market
2. Efficient labour market
3. Competitive cost factors
4. Economic benefits to Finland
in “value logistics”
1. Well-organised logistics
infrastructure
2. Finland market leader in
high value added logistics
1. Smooth border crossing
processes
2. Good cooperation among the
authorities
3. Removal of restrictions on
transport rights
1. Telematics and technology
put to good practical use
2. EU development projects
completed
3. High level international
logistics know-how in use
Baseline situation 2005 1. Room for greater freedom
and efficiency in competition
2. Rigidities at junction points
3. Corridor, road and transport
fees and taxation
1. Bottlenecks along corridors
and at junction points
2. Primarily bulk logistics
1. Poor throughput, bottlenecks
2. Cultural and other problems
in cooperation
3. Development of aviation
constrained by regulations
1. Not utilised in practice
2. Major EU–Russian projects
outlined
3. Logistics competencies
scattered, no specialisation
in Russia
Target situation 2010
1. Good competition in markets
2. Flexibility 24/7
3. Competitive fees and taxes
4. Increased employment and
GDP through market share in
“value logistics”
1. Bottlenecks opened,
competitive services on
roads, railways and at ports
2. Large volume of logistics
services in high value added
logistics and large volumes
in segments
1. Smooth border crossing
processes, good throughput
at EU level
2. Good relations of
cooperation, Win-Win activity
3. Air traffic regulation has
been dismantled
1. Practical ICT, automation
and telematics solutions in
use
2. Results in key project areas
3. EU–Russia know-how OK,
logistics know-how OK
Measures required
to achieve target
2, 3, 4, 5
8, 10, 11, 13, 14, 15, 16, 19, 20
12
6, 7
8, 9, 17, 18
22, 24, 26
29, 30, 31, 32, 33, 34, 35
1, 6, 7
26
29, 35
(”Content of proposed
measure”, pages 11–17)
21, 22, 23, 25, 27, 28
Score card describing the success factors of Finland’s logistics position.
❘
29
Strengthening Finland’s logistics position
3.5 The development of transport markets
The impacts of internationalisation are gradually beginning
to filter through to the Finnish logistics market and major
supranational operators are now moving to take over the
domestic market as well. Most performance-level jobs are
naturally still done by the local workforce. The international
transport business is by now virtually in the hands of other
than Finnish operators. In shipping, the amount of
domestic tonnage as a proportion of total transport remains
exceptionally high.
In the logistics sector the process of consolidation is
only just beginning, and it is clear that even major Finnish
players will be taken over by European or other
international businesses. This further highlights the need to
maintain Finland’s business appeal. It is important that
Finland takes an increasingly active and forward role in
promoting economic cooperation and integration between
the EU and Russia. The logistics sector has a key role to
play in further deepening integration. An assessment is
needed to establish whether it would be possible to create
a common transport area for international transport
between Finland and Russia where transport operators from
both countries could enjoy sufficient freedom of operation.
There is a customs and passport barrier between the two
countries, and there is no free movement of labour.
However it is crucial that steps can be taken to increase
30
❘ An Action Programme
transport efficiency and that border procedures are clarified
and simplified. The opening up of international transport
should be based on the principle of reciprocity.
The Russian economy depends on rail transport, which
therefore has to work as consistently as possible, without
barriers and deep in the Russian system. Rail transport
compatibility must be taken into account if the aim is to
establish a significant longer term presence in the logistics
of Russian foreign trade. An assessment is needed on the
integration of rail transport between the two countries on
the basis of the principle of reciprocity.
In seeking to promote the competitiveness of rail
transport Finland has tended to give preference to other
means than the opening up of competition. In the future,
however, we need to take account of the opening up of rail
freight transport to competition in 2007 and the changes
that this will imply to the rail market.
The European Union is currently processing a port
service directive that would allow self-handling in port
services. Even if the directive is not adopted, steps are
needed to explore how efficient resource use can be
promoted without compromising labour and environmental
safety.
The bilateral 50/50 permit quota system that is now in
place means that road transport between Finland and
Russia is virtually unrestricted. It is more or less a free
market. Nonetheless it would be useful to look into the
possibility of dropping the permit system from the road
transport agreement in the near future. The number of
permits exchanged currently stands at around 250,000 per
annum and is rising. The system has served the function of
a pressure reserve in mutual negotiations, but it has been
used rather sparingly. Half a million permits have no
impact on transport market shares. The Russian party,
however, still considers the permit system necessary
because it guarantees safe and reliable transport.
Russia continues to have a problem with the standard of
vehicles it uses in domestic transport, and therefore strict
traffic safety and environmental regulations will be needed
in the future as well. A decision to abandon the travel
permit system would therefore not spell complete
lawlessness.
It is important that Finland closely monitors the
situation in other member states with regard to the
introduction of kilometre charges as required by the EU as
well as the development of related ICTs.
As from 1 May 2004, the conditions and rules for
international transport have been the same in all 25 EU
Rationale and justification
member states. In the transport field the single most
significant transitional arrangement in the enlargement
talks concerned cabotage, i.e. road freight transport within
individual member states. During the transitional period
transport hauliers in Estonia, Latvia, Lithuania, Slovakia,
the Czech Republic, Poland and Hungary are not allowed
to engage in cabotage in other member states, nor are
hauliers from other member states allowed to engage in
cabotage in the said new member states. This reciprocal
arrangement was aimed at preventing distorted competition
in the transport market. For Estonia, Latvia, Lithuania,
Slovakia and the Czech Republic, the transitional period
will run for no more than five years, in Poland and Hungary
for a maximum of six years. The formula applied for
establishing the transitional period was thus =
2/3years+2years+1years=5/6years.
By 1 May 2006, all member states are required to
report whether the transitional period shall be extended by
a further two years. At this point it will be necessary to
weigh the pros and cons to Finland of a reciprocal opening
up of the markets. The Ministry will work closely with the
relevant parties to review the impacts of the transitional
period to open markets.
Member states shall report to the Commission on the
possible extension of the transitional period by a further
year no later than 1 May 2008. This extension, however,
will only be granted in the event of a serious market
disruption or the threat of such a disruption. In spite of the
transitional period, member states may agree on cabotage
permits on a bilateral basis.
Globalisation and toughening competition go to further
underline the importance of a disruption-free labour market
throughout the various parts of the transport chain. A major
strength of the Finnish contract society is that the labour
market organisations have open channels of
communication and negotiation and that all sides are
committed to implementing and following the outcomes of
negotiations. Continued efforts to maintain and further
develop this interaction and exchange can help to reduce
any disruptions to the transport chain due to disagreements
between the labour market organisations. The incomes
policy agreement for 2005–2007 includes a mutual
commitment to the principle of continuous negotiation and
sets out principles for local cooperation. In the transport
sector independent measures taken by the labour market
organisations can help to strengthen Finland’s logistics
competitiveness by promoting the adoption and application
of these principles. It is particularly useful to invest in the
further development of those lines of communication and
negotiation where labour market disputes and other conflict
situations can be addressed as or even before they unfold.
Good bargaining and labour market relations are a key
asset for Finland in a situation of intensifying global
logistics competition. A concrete example is provided by
the transfer in spring 2005 of two freight vessels from
under the Norwegian flag to the Finnish flag.
The efficiency and capacity utilisation of the logistics
chain can be improved by applying the 7/24 principles
throughout the delivery chain. In April 2005 the labour
market organisations have reached agreement on a new
labour market agreement for port stevedores. This
agreement paves the way to a rearrangement of working
hours and to improving Finland’s logistics competitiveness.
In addition to the actual bargaining mechanism
between the labour market organisations, it is necessary to
have broader dialogue and exchange between the logistics
partners and the government. Experiences gained in
intersectoral dialogue in connection with the “Finland in
the Global Economy” project have been very good. Indeed
the labour market partners should continue their dialogue
with the government. The Ministry of Transport and
Communications has plans to set up a separate working
group for purposes of this dialogue where all the labour
market organisations have comprehensive representation.
The dialogue should aim to take better account of
customer needs, improve labour productivity and secure
stable and productive jobs, know-how, professional
competence and welfare in the workplace so that there is
better correspondence between the supply and demand of
jobs at different stages of the logistics chain.
It is important constantly to monitor legislation and
other provisions concerning the duties and responsibilities
of businesses in the transport market so as to make sure
they are fully up-to-date. Any defects or shortcomings shall
be addressed immediately. Where new provisions are
concerned, their impacts on Finland’s logistics
competitiveness must be taken into account. Existing
legislation shall also be closely monitored to make sure
that failure to adhere to any provisions aimed at
maintaining traffic or employee safety does not give any
competitive advantage to companies that are in breach of
the rules. In addition to control and supervision by the
authorities, steps are needed to promote the incorporation
of transport safety into management and quality systems
and to improve the control and management of transport
safety risks in business and industry.
❘
31
Strengthening Finland’s logistics position
3.6 Better productivity through research and new technology
One of the manifestations of globalisation is that modern
ICTs allow for the production of services from outside the
country’s border, say from India or some other country
with cheap but competent labour. However the logistics
industry is often quite closely tied to place. Productivity
and cost developments present a major challenge for
maintaining competitiveness. Given the level of labour
costs in Finland, it is impossible by means of logistics
competition to prevent industrial production from moving
to cheaper labour countries.
New technologies offer new opportunities. Often the
introduction of new technology helps to give increased
efficiency in the performance of a given function. Yet the
greatest development potential lies in a complete
rethinking of operations, which may lead to the
realisation that the earlier functions are not needed in the
first place. This search for whole new opportunities is a
task for basic research. It is imperative that business
companies keep a close eye on basic research and the
development of new technologies and where necessary
launch R&D projects to support the bigger and smaller
development steps within their own organisation.
In principle Finland has strong competencies in
information and communications technology, but the
application of new technologies in the transport and
logistics market is a harder challenge. The introduction of
telematics often depends on the solutions and timetables
of major international transport companies. In the past
ten years work to develop Russian and Finnish logistics
information systems has taken place in the context of the
TEDIM programme. The results have shown that this
must be a consistent, long term development effort
because for the time being at least, Russia is not in a
position to make effective use of information and
communications technology. Furthermore, high-powered
and compatible information systems would impact some
Russian import practices in such a way that the
authorities have been reluctant to take them onboard.
Finland is closely involved in this development and it
is obviously important to step up cooperation here with
Russia. It is important to ensure that Finland is Russia’s
first partner in the introduction of new systems and
procedures. This will encourage Finnish businesses to set
up operations in Russia and give them a competitive edge
over their rivals.
In road transport, vehicle size can no longer be
increased. Vehicle fill rate and capacity utilisation, on the
other hand, can still be improved, but this would require
32
❘ An Action Programme
a 7/24 operation throughout the transport chain in order
to get every hour of every day of the week into maximally
efficient use.
In rail transport there are less degrees of freedom than
in road transport. This means that rail transport and train
formation can be automated especially in the case of
freight transport without compromising safety – in fact in
some instances safety can even be improved. This,
however, requires substantial investments and will also
take time. The biggest investments are needed in the rail
network and in automatic train protection and control.
Automation here would bring much-needed expertise into
Finland, possibly even equipment manufacture and
innovation.
All terminals where switches are made between
transport modes hold a strategic position and are
particularly susceptible to cost increases. At rail terminals
there should be open access to different alternative
terminal services. More efficient technologies should be
made available for the handling of transport units. The
difficulty is that this equipment is expensive when
compared to transport volumes.
Cost levels are the highest of all at airports. In spite of
the high costs, transport volumes are increasing rapidly,
which is probably explained above all by the speed of air
transport and also by improved punctuality and storage
management. The high costs of air transport are easiest
to sustain in the transport of valuable high technology
goods.
Ports have made major investments in recent years in
heavy container handling technology. Finland has also
built one all-weather terminal. At the same time new
monitoring and control systems have been developed to
keep track of traffic and transport, and freight throughput
has increased. Even so there is still plenty of scope for
new automation solutions. The share of human labour
must be reduced and work safety standards must be
raised.
Rationale and justification
3.7 Demand for skilled and competent labour
An ongoing development effort is required in logistics
education and research. This is a multidisciplinary field
that lends itself well to be studied as a minor subject.
The target levels for logistics education need to be raised,
and research work in Finland can contribute to
strengthening the theoretical foundation of the field and
to developing tools for effective problem solving.
Increasing internationalisation means that logistics
professionals are expected to show an ever wider range of
competencies, stronger language skills and involvement
in expert exchange. On 9 December 2004 the Ministry of
Education commissioned a working group to review
higher education in the transport sector.
The working group’s remit is to:
1. Review the development of the transport operating
environment and its impacts on development needs in
higher education.
2. Study the need for higher education in the transport
sector and submit proposals on the organisation of this
education and an appropriate regional division of labour.
3. Submit proposals on how to strengthen R&D in the
transport sector, bearing in mind the networking
opportunities offered by universities and research
institutes. The working group is due to complete its
work in October 2005.
There is no such thing as Finnish logistics or Russian
logistics, but it is important to know how to put theories
into practice in the Russian or some other specific market.
This is why the exchange of knowledge and experiences is
so important and why it would be good to have Russian
students in Finland at all levels. Likewise it would be useful
for Finnish students to gain first-hand experience of the
Russian operating environment and local training and
education.
The EU has set new, higher qualification requirements
for professional HGV drivers, both with respect to licences
and driver training. It is impossible to overemphasise the
importance of skills and competencies in this multinational
and multicultural environment, especially in view of the
current high rates of traffic accidents. Tougher training
requirements will, however, make it increasingly difficult to
hire competent staff. Transport has not been a very popular
occupation as it is. The government must assume overall
responsibility for the training of HGV drivers and transport
hauliers so that the education system here is comparable to
those in other occupations.
The appeal of the shipping sector must be maintained
and the entry threshold lowered, in spite of increasing
technicalisation and higher skills requirements. It is no
longer possible today to try out what it is like to work at sea
on a Finnish vessel without first having a vocational
training. Work at sea differs to some extent from “normal”
work on hard land and it would be useful for young people
looking to work in this sector to find out what the job
involves before getting a full-blown training.
It is important that professional maritime training is
broadly based and always aimed at the sea captain’s
competencies. Given the standards of modern technology it
seems wasteful to have vessels constantly manned with
service and maintenance staff, at least in short haul
shipping.
❘
33
Strengthening Finland’s logistics position
4. Background surveys
The Ministry of Transport and Communications
has commissioned two reports for use by the
working group, viz. “Logistics partnership
between Finland and Russia” (Publications of
the Research Institute of the Finnish Economy,
B 209) and “Transport links between the EU
and Russia: current state and future outlook”
(Ministry of Transport and Communications
Publications 4/2005). The results of these
reviews have been used earlier under section
3.3 of this report, but their main findings are
still described below.
4.1 Logistics partnership
between Finland and Russia
The report by the Research Institute of the Finnish
Economy studies the development of the Russian
economy and its impacts on Russian export and import
transport, discusses Finland’s role in Russian foreign
trade and transports, and sets out the researchers’
recommendations for a Finnish strategy in Russian
foreign trade logistics.
It is estimated that Russia’s GDP will grow at an
annual rate of around six per cent through to 2010. In a
global comparison this is an impressive rate indeed. It
implies an average annual increase of 10 per cent in
Russian imports. Russian exports depend crucially on
world market prices of raw materials, and oil in particular.
The price projections behind the forecast of a 6 per cent
increase in GDP corresponds to an annual increase in
exports of around five per cent. Russia’s huge export
surplus means there is ample space for a rapid growth of
imports for several years to come. The forecast for
Russia’s economy is optimistic, by it is this forecast that
34
❘ An Action Programme
the Russian Ministry for Economic Development and
Trade considers the most likely, and it is also in line with
IMF prognoses. There are risks involved in this
development, including a possible collapse in oil prices or
increasing internal tensions and an unfavourable turn in
the business environment in the event of mounting
tensions between politics and the economy.
For the Finnish logistics sector, rapid economic growth
in Russia is excellent news. Finland is well placed to
maintain its market share of increasing Russian imports,
i.e. Finnish exports to Russia could continue to rise at an
annual rate of 10 per cent. Over 80 per cent of Finnish
imports from Russia consist of energy and other raw
materials, which are processed and exported to the world
market in the form of oil products, paper and metals. It is
quite possible and certainly profitable to gain a share of
Russia’s five per cent average annual exports growth. In
transit transport Finland has concentrated on high-value
goods, for which the Finnish route is the most
competitive. In value terms one-third of Russian imports
come into the country via Finland. In this area of easternbound transit transport, the Finnish logistics industry
could increase the volume of goods carried at the same
rate as Russia’s imports are growing, i.e. by 10 per cent a
year. In western-bound transit, it is harder to predict the
future outlook. Transport along the Trans-Siberian route is
sharply increasing. Our estimate is that Russian transports
from Finland could increase on average by eight per cent a
year through to the end of the decade. In national
economic terms, this is certainly a growing industry.
Overall Finland accounts for a relatively small
proportion of Russian transport flows (measured in weight
terms) when compared to Russia’s own total transport
and the flows coming in and going out through the Baltic
ports. Many Baltic ports and the ports at the eastern end
of the Gulf of Finland are designed specifically for high
volume transports of crude oil and oil products and other
bulk goods. By comparison the small size of the goods
flows that are carried through Finland and safety are key
assets that help to make Finland a competitive option.
Finland’s competitive strengths
Finland’s competitiveness in Russian foreign trade
logistics is based on geographic proximity, a competitive
infrastructure, the speed of transport, safety and value
added services and a high level of logistics know-how.
There are important synergy benefits that add to
Finnish competitiveness over rival routes:
Background surveys
• To satisfy Finland’s own export and import as well as
passenger transport needs, there are frequent
connections between Finland and continental Europe
and between Finland and Sweden, which can also be
used for carrying transit goods.
• The same applies to trade with Russia, which by
international comparison is at an exceptionally high
level and which also provides transport capacity for
transit purposes.
These synergy benefits have not yet been fully exploited.
Finnish imports and export deliveries and Russian
transport, on the one hand, and transit transport, on the
other, generate important mutual synergy benefits. It is
possible to get more out of the same transport resources
and infrastructure. At the same time, these three pillars
mean than Finland is less vulnerable to the kind of
sudden risks that are typical of Russian transport. The
Baltic countries, then, are far more vulnerable because
they depend almost exclusively on transit traffic. On the
other hand, the key importance of transit to the Baltic
countries makes them try that much harder – and makes
them tough competitors.
Vision for 2010
The report presents a vision for the Finnish logistics
industry and outlines a strategy for improving industry
competitiveness in Russian foreign trade transport. The
aim of the vision and the strategy is to pursue three
objectives in as balanced a fashion as possible. The key
consideration for transport customers – trade and industry
– is the efficiency of transport and related services that
generate real value added. For the logistics industry, this
is first and foremost a business operation, and it is
primarily concerned with its competitiveness and
success. For government and tax payers, the main
concern is with the social return on investments made in
transport.
Finland’s Baltic highway works excellently, as does
transport between Finland and Russia, By making use of
existing synergy benefits, Finnish-based logistics
companies are the leading carriers of high value goods in
Russian foreign trade. Like western companies in the
industry, Finnish logistics businesses are expanding their
operation into Russia. Logistics industry income from
Russian transports is increasing by at least eight per cent
a year.
Finland’s weaknesses
Finland also has some logistics weaknesses. The Finnish
route to Russia from Central Europe is longer than those
through the Baltic countries and the direct land routes
from Central Europe. Cost levels in Finland – wages, fuel,
charges, etc. – are higher than in rival countries. The
country’s inflexible labour market culture can easily
hamper efforts to increase the efficiency of operations.
Transport flows in Finland also tend be split between a
number of rival ports and their small operators, which
adversely affects efficiency and inevitably leads to
overlapping investment. These weaknesses have been
compensated by resorting to new technology, by adopting
information technology and automating operations.
Government authorities have worked closely together
in a concerted effort to open border crossing bottlenecks
and to establish a common set of rules in consultation
with the Russian authorities. They have invested in IT
development projects, electronic customs clearance
services, streamlining operations and modernising border
stations, all of which has helped to speed up freight
transport. Free zone storage and many other flexible
customs procedures also compensate for the high costs of
the Finnish route.
The Finnish strategy in Russian logistics
The proposed Finnish strategy is based on three main
elements:
• improved transport economy,
• developing Finland as a logistics centre,
• expansion of logistics businesses into Russia.
This strategy is supported by ongoing development of the
infrastructure, international cooperation and cooperation
with the Russian authorities as well as concerted
marketing of Finnish logistics know-how.
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35
Strengthening Finland’s logistics position
4.2 Current state and future outlook for EU-Russian transport connections
The Ministry of Transport and Communications survey
examines the development of EU-Russian and EU-Asian
trade, the principal transport connections and their
development prospects, current and future transport
volumes and Finland’s position.
Impacts of globalisation
With the ongoing process of globalisation, more and more
production is being relocated in growing Asian
economies. At the same time accelerating population and
production growth is creating in Asia an economic
concentration that is fast overtaking the European and
US economic areas. The Chinese and Indian economies
are set to grow tenfold over the next 30 years. All this will
revolutionise goods flows in world trade. The Russian
economy, too, is set to increase considerably, although
here declining population trends will have the effect of
restricting growth.
EU-Russian trade and economic dependence will
continue to increase, so much so that the two areas
effectively constitute one economic area. Russia will
become much more self-sufficient with respect to the
production of consumer and investment goods. In the
future the CIS will be the only area in the northern
hemisphere with substantial amounts of raw materials for
export. A large part of Russian exports to the EU consists
of energy products. However the share of energy in trade
between the EU and Russia will no longer increase
appreciably.
In the transport sector these trends will have the
following effects:
• EU-25 exports (excluding energy products) to emerging
economic areas (CIS, China, India, DAE countries) and
to Russia will almost triple by 2030.
• EU-25 imports (excluding energy products ) from
emerging economic areas (CIS, China, India, DAE
countries) will double or triple by 2030. Imports from
Russia will triple.
• Finnish imports from Russia and exports to Russia will
almost triple by 2030.
Faster than anticipated development in Russia would
reduce transport volumes in foreign trade as selfsufficiency in Russia increases. Slower than anticipated
development would also reduce transport volumes as
demand for import and export products would decline.
36
❘ An Action Programme
Background surveys
Transport routes for Russian foreign trade
Factors influencing the position of the Finnish route
Russian transport policy planning has gained in efficiency
in recent years. The protectionist ambitions that are part
and parcel of Russian transport policy are a source of
disagreement with EU countries. Ever stricter EU
regulations are causing some difficulty for Russia and
Russian transport hauliers. However it is expected that
Russia’s forthcoming membership of the WTO may
resolve the disputes surrounding Russian tariff policies,
particularly in rail and air transport.
The main factors influencing the position of the Finnish
ports route and freight transport between the EU and
Russia and between the EU and Asia are as follows:
• The growth of large-unit and intermodal transport and
increasing service standard requirements (speed, safety,
security, value added logistics, transport service
connections) are areas in which the Finnish route is
competitive. Transport costs for expensive products are
also competitive on the Finnish route.
• Factors influencing the competitiveness of the Finnish
route include: logistic development in the Baltic
countries and Russia, policies favouring Russia’s own
ports, port projects in other countries and development
of ground connections between Russia and continental
Europe.
• Finland will not necessarily see an increase in Russian
transit volumes, but by offering value added logistics
services the economic significance of transit transport
will increase, in spite of the slowdown in volume
growth.
• The competitiveness of the Finnish route over other
options is the strongest in high value goods because
both transport times and costs are at the same level or
lower than on those other routes.
Against the background of what has been said above, the
development and status of transport routes can be
described as follows:
• Shipping routes will continue to account for the largest
volumes of transport between Europe and Asia, although
air transport and the Trans-Siberian railway will assume
increasing significance.
• Russia will devote major investments to the development
of its key transport corridors, which are corridors 1, 2 and
9A, the northern sea route and the ports in the Baltic Sea
and Barents Sea that serve this route.
• The capacity of Russian ports will increase more slowly
than its capacity needs. Russia will continue to need
transit services through the ports of other countries.
• Development of the Berlin–Moscow connection will be a
slow process owing to difficulties that slow down the
transit traffic through Belorussia. Investments in
infrastructure and improved standards of logistics services
will increase traffic on the route and attract hauliers from
competing routes. The impact of improving service
standards on the Finnish route will remain insignificant.
• The favourable location of Baltic ports, their efficiency
and good land transport connection mean they will
continue to have a vital role in Russian foreign trade
transport.
• The capacity of the Trans-Siberian railway is limited and
the growth of Russia’s own transport needs alone may fill
up the remaining free capacity. Transport between the EU
and Asia will have to rely primarily on traditional shipping
routes.
• It is unlikely that the northern Arctic Sea route will gain
significance during the first part of this century, but by the
end of the century it may be highly important.
The position of the Finnish harbour route can be
strengthened by investing in value added logistics
services and by developing relations with the authorities
and private players in logistics chains both in Europe,
Russia and Asia. It is also in both EU and Finnish
interests to launch and support development projects in
Finland, Russia and Asia aimed at removing
infrastructure bottlenecks along the Finnish route. Price
competitiveness must also be maintained by the right
tariff and charge policy.
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37
Strengthening Finland’s logistics position
Summary of EU and Russian routes
Route
Source: MTC 4/2005
Traffic significance
Transport modes
Major problems and areas
of development
Germany – Poland
• Connects TEN network with Russia’s
Euro-Asian corridors (Trans-Siberian
railway and the Russian north–south
corridor).
• Great national significance in
Russia and Belorussia.
• Multimodal Euro-Asian corridor
(railway, road, water transport,
connection to Russia’s inland
waterway network).
Railway:
• Load transfer at Brest. Work under way
to develop a carriage with automatic
gauge width adjustment.
• Work to raise speeds throughout the
route.
Road:
• Polish section of the route severely
congested. Long waiting times at the
Polish–Belorussian border. Overhaul
of the Polish section.
Russian ports
• Together with Finnish and Baltic
ports Russia’s most important
foreign trade route.
• Multimodal corridor links up with
Russia’s key centres and sources of
natural resources, the Euro-Asian
network (Trans-Siberian railway and
national corridors) and the inland
waterway network.
• Connection with main gas pipeline.
• St. Petersburg port location in a major
city, difficult navigation conditions in
the winter.
• Environmental risks.
• Extension of the Primorsk oil harbour,
construction of the Lukoil Vysotsky port,
development of Ust Luga.
• Land transport connections.
Baltic ports
• Good geographic location and
navigational conditions.
• Good road transport links to Russia.
• Multimodal corridor oriented mainly
to serving Russian and other CIS
transit traffic.
• Mainly liquid and dry bulk cargo.
• Ro-Ro traffic important.
• Efficient bulk goods transport.
• Container transport less advanced.
• Shortcomings in environmental
protection and equipment and
procedures to deal with accidents.
• Construction of deep water harbour
at Sillamäki.
Finnish ports
• Best line service to the heart of
Europe.
• Efficient ports.
• High environmental and safety
standards.
• Good land transport connections to
Russia and its Euro-Asian
connections.
• Multimodal corridor oriented to
demanding transport operations
(container handling, dangerous
chemicals, Ro-Ro traffic).
• Empty containers returning from
Russia are used for Finnish import
transport.
• E-18 motorway in Finland.
• Improvements to road connection
from Moscow through St.Petersburg
to Finnish border.
• Rail capacity almost fully used.
• Increasing axle weight on Finnish
section to 25 tonnes.
• Investments required on Kerava–Lahti
direct line and also east of Lahti for
fast train connections.
• On the Russian side of the border
investments in the St.Petersburg–Vyborg
rail line and raising speeds between
Moscow and St.Petersburg.
38
❘ An Action Programme
Ministry of Transport and Communications
PO Box 31
FI-00023 Government
Finland
Tel. +358 9 16002
www.mintc.fi